Cape Town - Rising petrol prices have resulted in growing calls by some for fuel price deregulation as a solution, while some say this could have the opposite effect and result in major job losses.
The Department of Mineral Resources and Energy last week gazetted for public comment a notice on the introduction of a price cap for 93 Octane fuel, which it had consulted on since April, as part of a “two-phase approach” to reduce fuel prices. This was in addition to the temporary reduction in the general fuel levy implemented that month.
This cap will allow for the fuel suppliers across the country to determine their own margins and compete on price.
The move would be a test to see if the model could work, the DMRE added.
The current prices of fuel stand at a record high R26.74 for 95ULP petrol and 93ULP at R26.31
“No disruptions are expected in the fuel market as 93 Octane accounts for a small portion of the market. However, this will allow the department to monitor how the market will react to the capping of the price,” the DMRE said.
They explained that the domestic prices of fuels are influenced by international crude oil prices, international supply and demand balances for petroleum products and the Rand/US Dollar exchange rate. To arrive at the final petrol pump price in the various fuel pricing zones, domestic costs, imports, levies and margins are added to the Basic Fuel Price (BFP).
The Fuel Retailers Association (FRA) say price capping and deregulation would only result in “unfair competition and job losses”.
The fuel retail sector employs over 83 000 whose livelihoods depend on sustainable fuel margins, the association explains “but if deregulation happens, those jobs will be lost altogether”.
FRA chief executive Reggie Sibiya said: “Deregulation happens when motorists put pressure on (government) – in most countries the price of fuel hasn’t come down so it hasn’t really worked there. Deregulation is not going to drive prices down because the margins are so low as it is.”
At a recent meeting between MPs and various representative associations, the general consensus was that any changes to the fuel structure should not have adverse consequences or do further damage to an already struggling sector that has to bear the brunt of unfair price margins and lower volume sales, the FRA said.
“The FRA board has called for the scrapping of the RAF tax, about R2.18 per litre of petrol, in favour of a flat-fee motor insurance. Any attempt to reduce retailers’ margin… any attempt will render most service stations unsustainable.”
Carlo Lusardi owner of Engen Vyfster Motors in Bloemfontein said they had already seen a decrease in profits following the impact of Covid-19.
“There has been a decrease in profits, due to the drop in sales on the forecourts. Many people still work from home these days, and therefore don’t travel that often anymore. Also as fuel retailers we get a fixed number of cents per litre margin on fuel. So, the higher the fuel price, the lower our profit margins are. We actually lose 43c per litre of fuel sold to customers who pay with their debit or credit cards, at the current high fuel price. “Deregulation is the worst scenario ever, in the current economic climate. The Fuel Industry employs about 83 000 people currently. If deregulation comes like in other countries around the world, customers will have to help themselves at the Fuel Pumps. A big percentage of the employees will lose their livelihoods.
“Many filling stations will also have to close down.”
Another fuel retailer who asked to remain anonymous added that revenue and profits would be significantly impacted by deregulation.
“With unsustainable, irresponsible price-cutting, followed by rationalisation, then increased revenue and profits… prices inevitably increase to sustain businesses, as per global experience.”
The Automobile Association (AA) said deregulation was complicated.
“Retailers say it is problematic because it could lead to job losses and stations closing. They are worried about that aspect. We are sensitive to that. At the end of the day the best price consumers can get for fuel is a position we would support,” the AA’s Layton Beard said.
“The price cap that has been suggested on the cost of 93 octane is not pure deregulation because we already have deregulation in our diesel fuel. It means a retailer can sell that fuel for less than wholesale prices or more than whole price. Price caps basically mean if implemented tomorrow, retailers could not sell it for more than what they are saying you can sell it for.”
The AA is calling for a review of the fuel price structure.
“It’s not a… flick a switch, it's a long-term thing, and will require a lot of effort. We need to look at each and every element that comprises a litre of fuel. Are they all still necessary and calculated correctly? There's an audit that is required. A lot of people say get rid of the fuel levy R3.93. Sounds good, the issue with that is the fuel levy generates R90 billion for government. Government is not just going to say we can do without. They can then turn around and increase existing taxes or introduce other taxes to make it up.”
Apart from the review they also said road safety was directly linked to the fuel price, as fewer car crashes could result in less claims to the Road Accident Fund, which could lead to lowering the levy, which is R2.18.
Theuns du Buisson, Economic Researcher at the Solidarity Research Institute (SRI) said: “Deregulation would mean government stops mandating prices. They have deregulated diesel on retail and partially wholesale. Government still publishes guideline prices. Everyone charges those prices, whether they could charge less or not. What we’d like to see is a completely deregulated market.”
He argued that deregulation would allow for more competition in the market.
Meanwhile DMRE said it would tomorrow announce a reduction in fuel prices including paraffin, following the reduction of international petroleum product prices, including crude oil.
Cape Times